Blueprint to Success (part 1), By Skip Williams

When I was growing up the most dreaded questions any adult would ask me was about my future; “What do you want to be when you grow up?” “Are you any good at it?” “Can you make money doing that?”  “Where do you see yourself in 5 years?” “How will you support your family?” etc.

They were very legitimate questions about my future and people who cared about me had every right to ask them, but what really bugged me was that I did not know the answers.

None the less, my job today is to ask you those difficult questions about the future of your dream Spa or Salon, and guide you through the process, but rather than frustrating you with only the questions I hope to point you in the right direction to find the answers as well.

Form the Idea

As a mighty oak starts with a single acorn, all great business successes start with a seed of an idea.  While it is not important to see every detail at this point it is important to “Decide what you want to be when you grow up”.  Do you want to be a Salon, a Day Spa, a Medi-Spa, a Resort Spa, a Skin Care Clinic, or something else?  Do you want to specialize in one or two aspects of Spa related services or have a broad variety of services?  What will you offer to your Clients/Guests that they can not readily attain elsewhere?

Think about the services you might offer, think about the décor of the facility, think about the level of customer service you wish to provide and think long and hard about what will make your facility unique.  This is the fun creative part of the job that should stimulate the creative part of your brain. 

Do not worry at this stage about location, profitability, size, price of services, the pay system you will use, or any of the other thousand details that will come soon enough.  Instead focus on the “Blue Sky” and how it might look in your perfect dream. 

For some this is the easy part, while others will struggle, sometimes this part of the process can last a few weeks and other times it may take a few years, either way, just relax and try to picture how your business might attract Clients/Guests and stand out as a unique facility.

Run the Numbers

The next step in the process is to find out “Can you make money doing that?”   Somehow you will need to take that dream and reduce it to numbers and answer; “How much will it cost to set-up and build?” “How much space will it require?” “How many services will I perform, and at what price?” “What are my expenses including the cost of labor?”

Again, it is not important to have a location at this point, instead let this exercise dictate how much space your facility will require.  We will need to start to look at some of the details that will impact cost of set-up, operational expenses, and revenue predictions.

As I have written before (“Are You Planning to Build-A-Spa” - Dermascope - July 1998 & “Calculating the Cost of Each Service” - Dermascope - December 2000 [you can re-read these two articles in the library section of my website]) I believe the best way to perform these calculations is with the “Module Method” where we learn 3 things about each treatment room, amenity space, or piece of the facility: How much will it cost to set-up? How much will it cost to run? And how much revenue can it generate?

This allows us to look at the cost to deliver each service, what services are most profitable, staffing requirements, cash flow predictions, break-even analysis, the optimum facility size, and much more.  Determine whether the profitability is at an acceptable level for you to proceed, re-think the concept, or abandon the idea all together.

Write a Business Plan

It has been said; “Failing to Plan is Planning to Fail!” and that is never more true than in business.  A Business Plan allows you to communicate your dream to investors as well as solidify that vision in your own mind in far more detail than in step one.

A good business plan should include such topics as Statement of Purpose, Opportunity Outline, Mission Statement, Objectives, Company Summary, Company Ownership, Facilities, Products & Services, Detailed Pricing, Pricing Strategy, Marketing Summary, Market Trends, Market Growth, Competition Analysis, Competitive Edge, Marketing Strategy, Management Summary, Organizational Structure, Management Team, Strengths and Weaknesses, Financial Plan, Setup Costs, Projected Pro Forma, Break-even Analysis, and Projected Cash Flow.

It is important to state who you are and what your vision is, but most investors will be asking two main questions; “What will this Business do in order to Monopolize it’s Marketplace?” and “How much Money can this Business Make?”.  So it is vitally important to spend extra time working on the answers to these two questions and make them a significant portion of your Business Plan even if it requires getting professional Marketing and Financial help.

Obtain the Financing

Getting Financing can be one of the most frustrating parts of the this whole process, largely because so much of it is out of your hands and dependant on someone else, often a stranger, saying “YES”.

If you plan to lease space for your business it is even harder, because most of the money you will want to borrow will be used for leasehold improvements and marketing, very little of the money will turn into assets that could be used for collateral.  If you plan to attract venture capital then you may have an uphill battle because the profit margins in this industry are no where near what Venture Capitalists are used to in other industries.

Successfully convincing someone to bankroll your venture comes from very careful homework in the Business Plan, painting a clear picture of your Vision, paying close attention to designing both Profitability and Strategic Marketing into the very fabric of your business.  This type of planning is seldom done by one person and I again recommend getting expertise in these areas which will lend credibility to the projections of your Business Plan.  One further note: bankers and lenders seem to understand Real Estate deals better than the nuances of your particular business so anytime you can involve the purchase of land or buildings into the equation you are more likely to grab their attention.  

Find a Location

You might be surprised to see that “Find a Location” is all the way down at number five on our chronological list of steps to take.  The reason is “Timing & Emotion”, if you find a location too early in the process then find out that the project is not feasible or you can not get financing for it then you are left with 2 choices; 1- Abandon the Project or 2 – Proceed Without the Proper Funding or an Adequate (Profitable) Business Model.

Landlords or Real Estate Sellers can not wait indefinitely while you get all your ducks in a row, and the emotional attachment to a certain location is sometimes greater than the force of gravity.  This gravitational force often leads potential business owners to make poor decisions and proceed prematurely or too quickly.  So my advice is for you to wait until the previous four steps have been taken before looking for the perfect location.

As you know the 3 most important things about any business is “Location, Location, Location”.  The Spa/Salon business is no different, I would rather have an imperfect facility in the perfect location, traffic and signage wise, than the perfect facility that no one will know about.  The best and cheapest advertising that you will ever do will be the look and signage of your facility in a location that will show it off.  Conversely it will take copious amounts of money and time to make up for a bad location with advertising and marketing.

Intermission

Once a location has been determined and leases signed the process from here down goes much faster, and many of the tasks below will need to happen simultaneously, so take a deep breath at this point and let’s move at a very fast pace as you are only 3-4 months from opening and “Miles to Go Before You Sleep”.

The whole trick with many of these steps is to have them all come together at just the right time prior to opening.  It is sort of like aligning the planets, and the planets have names; construction, products, menu, staff, supplies and equipment.  Your job is to make it all happen at just the right time, delays in construction or delivery of something can throw the whole schedule out of whack and cost even more delays.  Keeping a careful eye on construction will help you predict if it will finish on time.

Design the Space

One of the most common mistakes made in the design of a Spa is the ratio of “Revenue Production Space” to “Amenity Space”.  We all want beautiful wide open foyers and ample size changing rooms, we love a tranquil quiet room and then there are offices, laundry rooms, hallways, employee break rooms, etc., but none of this space, as necessary as it may be, will generate revenue.  The argument might be that having beautiful space attracts more Clients/Guests, and I would agree, however, carrying all this “Amenity Space” not only means Less Revenue, but also More Overhead Expense, in a business that already has limited profit potential.

Let’s look at any of your favorite spas out there, if you count how many treatment rooms they have and multiply that number by and average of 100 square feet (10 feet by 10 feet) you may be surprised at just how little amount of the total square feet that number represents, often as little as 20%-30% is used for “Revenue Production”.  What other businesses do you know that use such a small percentage of their overall space to make money?  I know of very few, and the few that do, have much higher profit margins on their product or service.

So the lesson is to dedicate as much of the space for making money as possible, here are some guidelines: Spa less than 1000sf should use 70-80% of the space for revenue, Spas 1000-3000sf should use about 55-60%, Spas 3000-7000sf should use 45-50%, and Spas larger than 7000sf should use about 40%.

Look for an Architect that understands “Function before Form” instead of the other way around and don’t be afraid to have a consultant review the architectural plans for operational flow.  Unless an architect fully understands the operational aspects of a Spa he/she can not be expected to understand why a laundry room has to be close enough to the treatment rooms without being near them, or why a Manicure station next to a Quiet room or Massage room may not be a good idea, and why squeezing one more treatment room into the design may mean the difference between success and failure.

Commence the Construction

Finding the right General Contractor for the construction of you Spa is priceless.  Besides being honest, and affordable he/she must be flexible and punctual.  Every minute of the construction phase is money, both money going out and the lack of money coming in.  A good Contractor will get the job done on time, be flexible with minor changes throughout the process, not be unreasonable about financial demands, and stand behind the work.

Try to visit the location at least once a day during the construction phase so that you can foresee any logistical problems that may arise before the corrections become expensive some good examples of this are electrical outlets in inconvenient places, or doors that swing the wrong way or swing into a piece of equipment you will later put into the room.

Begin the Marketing Process

Usually the construction phase lasts 2-4 months (much longer if you are constructing a building) and this is about the amount of time you will need to begin the “Pre-Marketing” campaign.  It may seem early but believe me when I tell you it could mean the difference of being profitable 2-4 months faster, which will make an incredible difference in your first year cash flow.

If you are not comfortable writing ad copy and/or you were not a marketing major in college then I recommend hiring someone or hiring some marketing firm to do this for you.  Hold them completely accountable for the results and work with them on a daily basis to insure maximum return on your marketing dollar.  Marketing is not easy, there is a little magic to the whole equation and failure here will insure failure for the business, and spending the money early means making money faster, saving precious cash flow.

Go to Part 2